Contract farming involves agricultural production being carried out on the basis of an agreement between the buyer and farm producers. It involves the buyer specifying the quality required and the price, with the farmer agreeing to deliver at a future date.
Contract farming (CF) is defined as forward agreements specifying the obligations of farmers and buyers as partners in business.
-> Easy access to inputs by farmers and assured access to commodities by contract companies.
-> Guaranteed market for farmers. This gives farmers the comfort level to be able to focus on what they are good at (farming).
-> Farmer access to cutting-edge production knowledge from contract companies. In order to get good quality commodities, contract companies provide the best varieties or breeds and advisory services from production all the way to marketing.
-> Rural employment creation through supporting the industrialisation of growth points.
-> Farmers’ price risk is often reduced as many contracts specify prices in advance.
-> While contract farming tends to guarantee a market, contractors keep prices very low in order to maximise profit.
-> Contract companies have the final say on quality and can reject ‘sub-standard’ commodities which they can allocate a lower grade. Farmers will just accept because there is nothing to compare with.
-> Contract arrangements reinforce a dependency syndrome. It is not easy for farmers to get out of contract arrangements. Most contract arrangements promote monoculture.
-> Contract farming arrangements are criticized for being biased in favor of firms or large farmers, while exploiting the poor bargaining power of small farmers.
-> Contract farming might not be suitable for agriculture in India where the majority of farmers depend on small or marginal landholdings.
-> Contracting agreements are often verbal or informal in nature, and even written contracts often do not provide the legal protection in India that may be observed in other countries.
-> Lack of enforceability of contractual provisions can result in breach of contracts by either party.
-> It can also be detrimental by encouraging large monoculture farming.
-> Problems faced by growers like undue quality cut on produce by firms, delayed deliveries at the factory, delayed payments, low price and pest attack on the contract crop which raised the cost of production.
-> Companies and States should promote group contracts with the intermediation of local NGOs and other organisations and institutions so that contractual relationships are more durable and fair.
-> There should be provisions for quick and just dispute settlement between the big corporations and small and medium farmers.
-> To make contract farming inclusive, farming groups and cooperatives should be encouraged.
-> The best practices from the most successful cases of contract farming should be taken into account when drafting the model law.
-> There has to be a system which monitors contracts to facilitate its smooth functioning in the context of small farmers.
-> Insurance component is a must to protect contract farmers’ interests. Thus, there is need for collective action through cooperative process to be able to buy and sell at better prices.
-> According to NITI Aayog, “The law that shall be formulated will be a general one for all commodities and will aim at laying down a uniform set of terms and conditions that will significantly reduce conflicts. It is quite clear that such a law will be positive and a good move.”
Government need to take long-term steps to ensure the economic viability of farming. Raising productivity, reforming land policies and solving remunerative price mess will require massive amount of public investment and political will.